The Impact of Brands on Innovation and Firm Performance – Empirical Evidence from Germany

Dirk Crass,

Brands belong to the most valuable intangible assets a firm can have. An established brand generates awareness and attention to a firm’s branded products, adds reputation and credibility and favorable associations (Keller and Lehmann, 2006). Firm’s that introduce product innovation may benefit in particular from the reputation of their brands (Aaker, 2007). The building of a brand takes, however, time and is associated with substantial investments. Whether a firm can expect a net gain from investments in brands is a priori not clear.

The research presented in this dissertation explores the impact of brands on innovation and firm performance. The empirical studies rely on the Mannheim Innovation Panel (MIP) which constitutes the German part of the international harmonized Community Innovation Survey (CIS). These surveys are representative for German firms and thus contain many small and medium-sized firms. Most of these firms are not required to publish any data. The inclusion of these firms constitutes an important difference to several existing studies. Existing studies which rely on publicly available firm level information, use most likely a selective sample of large firms which are not representative of the economy. The studies of this dissertation overcome this limitation and fill a gap in the literature as the findings are not related to large and famous global brands, but investigate the role of brands for a representative sample of German firms.

Brands can be protected by trademarks, but the majority of firms does not register trademarks at all. Extrapolated figures for the use of trademark registrations, which are representative for all German firms with more than five employees, show that about 18% of firms have at least one registered trademark. Based on thisfinding, Chapter 2 proceeds with the question of which factors drive firms’ decision to register trademarks. The empirical analysis shows that the probability to register trademarks is higher if firms are larger, have to overcome the distance to their customers, differentiate their products against those from competitors, and that product innovations in particular are associated to the use of trademarks. Based on the finding that the trademark registration of a firm is associated with its product innovations, Chapter 3 investigates the question of whether the use of brands has a positive impact on the commercial success of a firm’s product innovations. Firms can use a brand to introduce a product innovation into the market. A brand name might generate interest, adds credibility and reputation. The results show that firms can improve the odds of commercial success by using a brand. The market introduction under an established brand is shown to be associated with about 35% larger sales with product innovations.

While the use of brands and trademarks is associated with higher firm performance in terms of higher sales, the net gain of investments in brand capital is not clear. Chapter 4 demonstrates empirically that past brand-related investments contribute to current profits. Brand-related investments are proxied by the flow of trademark registrations

Venue: room 1.169, Minderbroedersberg 4-6

Date: 17 December 2014

Time: 15:45 - 17:15